NEW YORK—An engineering and janitorial services company is entitled to pursue more than $100 million in business interruption losses stemming from the destruction of the World Trade Center, even though it did not own or lease WTC space, a federal appellate court has ruled.
San Francisco-based ABM Industries Inc. had an insurable interest in the WTC complex it serviced and is thus covered under the business interruption section of its property policy, a panel of the 2nd U.S. Circuit Court of Appeals found earlier this week. The decision partially reversed a lower-court ruling granting summary judgment to ABM's property insurer, Zurich American Insurance Co.
"The 2nd Circuit decision has the potential to be one of those cases that policyholders cite with some regularity," said John Ellison, a lawyer with Anderson, Kill & Olick P.C. in Philadelphia, which represented ABM. "It is one of the more definitive statements, if not the most definitive, on the level of connection you need to have to a piece of property" to claim business interruption coverage.
A Zurich spokesman said the insurer is considering whether to seek review by the full appeals court but declined to comment further.
ABM, a New York Stock Exchange-listed company with $2.2 billion in 2003 revenues, employed 800 people at the WTC. It operated the complex's heating, ventilating and air conditioning systems and serviced public areas under contracts with WTC leaseholder Silverstein Properties Inc. and owner The Port Authority of New York and New Jersey. It also provided services to nearly all WTC tenants under separate contracts.
After the Sept. 11, 2001, terrorist attack, ABM sought coverage for all of its lost WTC income. The company also filed claims for lost income at 34 other lower Manhattan locations under its policy's "civil authority" provision, contending that authorities prevented it from entering the downtown area after the attack.
Zurich countered with a declaratory judgment action, and a federal judge found in the insurer's favor in 2003. The lower court ruled, for example, that ABM had no insurable interest in the WTC complex because it neither "used" nor "controlled" the buildings and thus was not entitled to business interruption coverage.
The appellate panel, however, overturned much of the ruling Wednesday.
The business interruption provision, the appeals court noted, covered "the interest of the insured in all real and personal property including but not limited to property owned, controlled, used, leased or intended for use by the insured."
The WTC complex was vital to ABM's business and therefore was "used" by the company, the court found. "To deny ABM's loss-of-income coverage simply because its income is derived from labor that occurs outside of its own cubicles and offices artificially excludes service providers when the (insurance) contract itself does not limit coverage in such a manner," the court wrote.
The lower court wrongly concluded that ABM must have a legal interest in the WTC property to claim coverage when New York law requires only that it have an insurable interest, the appeals panel added. New York statutes define insurable interest as "any lawful or substantial economic interest in the safety or preservation of a property from loss, destruction or pecuniary damage." ABM's interest in the WTC met that definition, the court found.
The court remanded certain other coverage issues for further hearings in the lower court, including whether ABM's civil authority claims actually arose from official actions or from the company's own decisions.
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